If the government wasn't already planning to tackle the financial impact of clinical negligence on the NHS it will certainly have to now.

The cost of compensating patients and their families for medical errors and mistakes is spiralling rapidly.

In 1998, the estimated cost of settling claims was a sizeable £2.3bn. However, the latest figures show that by April 2001 that figure had increased to a very substantial £4.4bn - representing 8% of the total NHS budget.

We think the health service could deal with complaints much more effectively

Steve Dewar, The Kings Fund

Worryingly for ministers and NHS managers, there are no signs that the rate of increase, or indeed the annual bill, is going to fall any time soon.

A more litigious society combined with record pay outs by courts are being blamed for the relentless rise.

Slow progress

The government has pledged to tackle the problem. However, progress has been slow.

The Chief Medical Officer for England Professor Sir Liam Donaldson is carrying out a review of the current system.

He is expected to outline an alternative method for dealing with cases and compensating patients and their families in a White Paper later this year.

Sir Liam is understood to be considering a number of schemes aimed at capping the annual cost of clinical negligence cases.

These could include a 'no-fault' compensation scheme or a fixed fees system under which claimants would be paid a set amount for errors or mistakes.

However, there are fears that these alternatives rather than capping costs could actually lead to an even higher annual bill for the health service.

Dr Francis Szekely, senior medical claims handler at the Medical Defence Union, which insures doctors against medical malpractice claims, said no-fault schemes in New Zealand and Finland had proved expensive.

"The problem is that people generally think that 'no-fault' schemes are a panacea for many of the current problems. They are not.

"When you get down to the nuts and bolts, it is immensely tricky."

There are also fears that 'no-fault' schemes can encourage patients and their families to sue.

"Patients almost expect a pay-out if anything goes wrong," said Dr Szekely.

High legal costs

One of the key areas Sir Liam and colleagues are examining is reducing the legal costs associated with compensation claims.

A report by the National Audit Office published in 2001 found that cases can drag on for years - five and a half years on average - significantly adding to the final bill.

In fact, the NAO report found that in 44% of cases the final legal bill was substantially higher than the final compensation award paid to patients or their families.

Key to reducing these costs is making the process faster. Sir Liam is also looking at ways of ensuring patients are not forced to take legal action in order to get an adequate response or apology from the NHS.

We need a faster and better system, not only to reduce costs, but to make sure the risk of mistakes happening again is minimised

Department of Health spokesman

"One of the things we feel goes very wrong is the bad quality of care given to patients when they make a complaint. Often they just want some sort of explanation or apology and an assurance about how things will change in the future.

"If people believe that things will go on as they are and if they do not get the response they feel they deserve then they will decide to take a case against the NHS.

"We believe that if the NHS could get better at handling complaints and dealing with complaints more swiftly this would go a long way."

Improved response

The Kings Fund wants the health service as a whole to improve the way it deals with complaints.

The current process is complex with different organisations dealing with different types of complaints. There is also limited co-operation between the various bodies, such as the General Medical Council, Health Ombudsman and NHS.

The Kings Fund believes a 'clearing house' should be established to decide which organisation handles which complaints.

"We think the health service could deal with complaints much more effectively," said Mr Dewar.

"For example, the GMC receives thousands of complaints about doctors. However, between 70% and 80% are sent back because they do not fall under the GMC's remit.

"Instead of this, we believe that the complaint should be forwarded on to the relevant body and in that way patients might feel that their complaint is being handled properly."

The Department of Health is acutely aware of the shortcomings of the current system.

A spokesman has acknowledged that fundamental reform is needed.

He said: "The current system is slow and bureaucratic and doesn't work for either patients or for NHS staff.

"We need a faster and better system, not only to reduce costs, but to make sure the risk of mistakes happening again is minimised."

It is hardly surprising then that the government's White Paper is eagerly awaited.

There is a strong determination within government that the extra billions being spent on the NHS over the coming years are put to best use.

Clearly, paying high legal bills and avoidable compensation do not fall in this category.